Private lenders, financial institutions, and other types of creditors frequently have trouble obtaining repayments from debtors who are operating insolvent businesses. Fortunately for creditors, if they have secured their loans via a Legal Charge on a debtor’s property, they then have the right to take control of the secured property to obtain repayment of their loan.If this is threatened it is important for the debtor to seek advice immediately from an IP or other suitably qualified person to ensure their interests are protected. The expert Insolvency Practitioners and advisers at Real Business Rescue can help sort through the legal entanglements to assist the lender or borrower

What is LPA Receivership?

The UK Law of Property Act (LPA) passed in 1925 is a statute that contains provisions that give a secured creditor the right to exercise receivership over the property of a debtor who fails to adhere to the conditions of lending agreements that are secured against a property/mortgage over a property portfolio. The LPA Receiver takes full control over the operations of the asset to facilitate the process of the debt being repaid, and has the right to collect rent or sell the property to ensure full repayment. However, unlike an administrator, a receiver is not granted the statutory authority to require information from company directors and can only take control of assets which have a fixed charge and not those only subject to a floating charge .

If you are asked for upfront fees for any business rescue plan, then be careful, upfront fees are not necessary to start a business rescue plan.

Understanding the LPA Receivership Process

Initiating the LPA receivership process is relatively easy and inexpensive. Once a debtor fails to adhere to the terms of a loan the creditor can use an appointment document (which includes a deception of the loan agreement) to appoint a receiver over the property. The receiver then takes control of the property, with the primary goal of recovering the debt owed to the secured creditor. Most situations involve arranging a sale of the property to obtain repayment in full as quickly as possible, but some receivers also have the power to manage the property and collect rent to repay the owed debt, which may also maximise the asset value

Before appointing a receiver the creditor is advised to thoroughly weigh the benefits of LPA receivership and examine the planning permissions, factual occupancy arrangements, and any necessary licensing of the property. Once LPA Receiver has been appointed the previous owner is not allowed to exercise any rights over the property. The receiver is given sole discretion in deciding how the property is managed and sold, and may seek to obtain planning permissions or perform other actions that will increase the property’s value, but is not required to do so.

The Benefits of LPA Receivership for Lenders

The main benefits of LPA receivership relate to the fact that they give creditors the ability to enforce a security placed against a debtor’s property in the event of loan default. In comparison to other debt recuperation options, this route is much faster and easier, making it the ideal course of action for any lender who is trying to obtain repayments from a non-paying debtor who has taken out a property-secured loan. Rather than waiting for a debtor to become solvent and begin making repayments, you can take control of the situation and claim the amount owed in an expeditious manner. Many lenders only extend loans to high-risk borrowers when the loan can be secured against some type of property, specifically because LPA receivership gives the creditor some form of protection from default.

Handling LPA Receivership Independently

According to UK law, the receiver does not have to be a licensed Insolvency Practitioner. In fact, the creditor can choose to appoint anyone as the receiver only take control of the assets which have a fixed charge and not those only subject to a floating charge.

Appointing a receiver is often the easiest and most appropriate solution for many private lenders and financial institutions. Not only does appointing a professional to handle LPA receivership give you the freedom of being able to recover debts owed, it also expedites the process because the sale or rent collection is handled by individuals who are experienced in maximising property values before sale/acquisition, and/or negotiating with debtors to facilitate repayment agreements that may provide more optimal outcomes than utilising the property’s value to repay the debt. We can also conduct a pre-receivership report to determine whether an informal agreement can be made to arrange a viable repayment schedule with the debtor, without having to undergo the formalities of receivership.

Avoiding LPA Receivership as a Debtor

If you’re a debtor who is in danger of defaulting on a property-secured loan, and fear the possibility of being subject to LPA receivership, we can help you take the appropriate action to avoid this outcome by negotiating with creditors. We’ll also work with you to review the legality and legitimacy of the security (in conjunction with you lawyers), and to determine whether the lender is simply using scare tactics to coerce you into making repayments. Our professional insolvency practitioners are experienced in acting as intermediaries between lenders and borrowers, so we can usually resolve matters diplomatically while avoiding the hassle and additional cost of executing formal insolvency procedures.

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Real Business Rescue is a trading name of Begbies Traynor (Central) LLP a limited liability partnership registered in England and Wales No. OC306540. The firm is authorised by the FCA to undertake debt counselling and debt adjusting and its reference number is 660455. Copyright 2018 Real Business Rescue, all rights reserved.